MY wife and I are aged 65 and 64 respectively. We have $800,000 in a self-managed super fund from which we draw the required minimum each year and for which the investments are spread between term deposits and ‘‘blue chip’’ high-yield Australian shares. While not producing overall high returns (it returns about 4.5 per cent net after fees) our prime strategy is to beat inflation. We also have cash in the bank in our own names, so we will never get a pension. My question relates to what would happen if we both die together. The cash would pass to our non-dependent children without any tax. However, the money from the SMSF would be taxed and subject to a 17 per cent death tax. Would there be merit in withdrawing all or part of the money from the SMSF and investing in our own names to save the death tax? I realise that it may not be possible to move the whole amount but I was thinking we could maximise up to the tax-free limits allowed. The chances of you both dying simultaneously are remote, but there are several issues to think about. For starters, because your fund invests only in cash and Australian high-yield shares you will lose the ability to claim a refund of excess franking credits if Labor wins office and their proposed policy gets up. This would reduce the net yield from your fund. It would be worthwhile to seek advice about changing the asset mix in your fund to include international shares that might give you higher growth but do not produce franking credits. You could also ask your adviser to do the sums to find out what proportion of your assets could be held outside superannuation to create a situation where you would be paying no personal income tax. Once you have done that you could withdraw $300,000 from your fund and recontribute it as a non-concessional contribution. This would dramatically reduce the taxable component. Keep in mind this must be done in the financial year you turn 65. I am 69 and will retire in two years – my wife will continue to work part-time for the next few years. Can we combine our superannuation funds to have a single fund and hence have a greater balance on which to gain interest? You are not allowed to have a joint superannuation fund – if your assets are substantial, and the strategy is appropriate for you, you could consider starting your own self-managed fund, which would enable you to have two accounts under the same umbrella. However, this is not a viable strategy for most people. If you choose a retail or industry fund, and the returns are good, and you are both members of that fund, the combined earnings on the two separate accounts should be equivalent to what they would be if the money was in one account. You have written about the inherent dangers if a couple leave all their assets to each other. We do have our wills this way and then to our two living sons and the family of a deceased son. We have an SMSF of just over $1 million and with our home and investments have another $1 million in our own names. My comments were a warning to aged pensioners. Due to the difference between the couple asset test cut-off threshold, and the threshold for a single pensioner, it is common for the single pensioner to lose the entire pension if their partner dies. From the information provided, it appears unlikely you would ever qualify for an age pension. The best action for you is to take good legal advice and make sure your will is drawn in such a way that reflects your wishes, and caters for potential long-term changes in the situation of the beneficiaries. I have money in superannuation and have been confused about tax on death payouts. I took out a binding nomination thinking this alleviates the tax but apparently not. Then I saw where you were advising someone to invest in their own name because of the death tax. What are the options please for investing in one’s own name? The “death tax”, as you describe it, is 15 per cent plus Medicare levy and applies to the taxable component of a person’s superannuation that is left to a non-dependent. A spouse is always a dependent in this context. A binding nomination is simply an instruction to the trustee of your fund regarding the disposition of your superannuation when you die – it has nothing to do with the death tax. It is used when a person feels that there may be disputes over their superannuation after they pass on. In the article you refer to I pointed out that it is possible to instruct the person who holds your enduring power of attorney to withdraw all your superannuation tax-free before you die. This is one way of getting around the death tax. The options for investing in your own name have been unchanged for many years – it’s a choice of a cash property or shares.

Ask Noel: Managing the ‘death tax’

MY wife and I are aged 65 and 64 respectively. We have $800,000 in a self-managed super fund from which we draw the required minimum each year and for which the investments are spread between term deposits and ‘‘blue chip’’ high-yield Australian shares. While not producing overall high returns (it returns about 4.5 per cent net after fees) our prime strategy is to beat inflation. We also have cash in the bank in our own names, so we will never get a pension.

My question relates to what would happen if we both die together. The cash would pass to our non-dependent children without any tax. However, the money from the SMSF would be taxed and subject to a 17 per cent death tax. Would there be merit in withdrawing all or part of the money from the SMSF and investing in our own names to save the death tax? I realise that it may not be possible to move the whole amount but I was thinking we could maximise up to the tax-free limits allowed.

The chances of you both dying simultaneously are remote, but there are several issues to think about. For starters, because your fund invests only in cash and Australian high-yield shares you will lose the ability to claim a refund of excess franking credits if Labor wins office and their proposed policy gets up. This would reduce the net yield from your fund.

It would be worthwhile to seek advice about changing the asset mix in your fund to include international shares that might give you higher growth but do not produce franking credits. You could also ask your adviser to do the sums to find out what proportion of your assets could be held outside superannuation to create a situation where you would be paying no personal income tax.

Once you have done that you could withdraw $300,000 from your fund and recontribute it as a non-concessional contribution. This would dramatically reduce the taxable component. Keep in mind this must be done in the financial year you turn 65.

I am 69 and will retire in two years – my wife will continue to work part-time for the next few years. Can we combine our superannuation funds to have a single fund and hence have a greater balance on which to gain interest?

You are not allowed to have a joint superannuation fund – if your assets are substantial, and the strategy is appropriate for you, you could consider starting your own self-managed fund, which would enable you to have two accounts under the same umbrella. However, this is not a viable strategy for most people. If you choose a retail or industry fund, and the returns are good, and you are both members of that fund, the combined earnings on the two separate accounts should be equivalent to what they would be if the money was in one account.

You have written about the inherent dangers if a couple leave all their assets to each other. We do have our wills this way and then to our two living sons and the family of a deceased son. We have an SMSF of just over $1 million and with our home and investments have another $1 million in our own names.

My comments were a warning to aged pensioners. Due to the difference between the couple asset test cut-off threshold, and the threshold for a single pensioner, it is common for the single pensioner to lose the entire pension if their partner dies. From the information provided, it appears unlikely you would ever qualify for an age pension. The best action for you is to take good legal advice and make sure your will is drawn in such a way that reflects your wishes, and caters for potential long-term changes in the situation of the beneficiaries.

I have money in superannuation and have been confused about tax on death payouts. I took out a binding nomination thinking this alleviates the tax but apparently not. Then I saw where you were advising someone to invest in their own name because of the death tax. What are the options please for investing in one’s own name?

The “death tax”, as you describe it, is 15 per cent plus Medicare levy and applies to the taxable component of a person’s superannuation that is left to a non-dependent. A spouse is always a dependent in this context. A binding nomination is simply an instruction to the trustee of your fund regarding the disposition of your superannuation when you die – it has nothing to do with the death tax. It is used when a person feels that there may be disputes over their superannuation after they pass on. In the article you refer to I pointed out that it is possible to instruct the person who holds your enduring power of attorney to withdraw all your superannuation tax-free before you die. This is one way of getting around the death tax. The options for investing in your own name have been unchanged for many years – it’s a choice of a cash property or shares.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance.